In this article, we discuss the 10 best water stocks to buy now. If you want to skip our detailed analysis of the water sector, go directly to the 5 Best Water Stocks to Buy Now.
Commodity prices increased significantly during 2022 due to rising inflation and supply chain-related challenges. While crude oil and natural gas prices were in the limelight, there was little to no discussion about the outlook of one of the most important commodities: water. In the realm of water resources, stakeholders lack a systematic foundation for making economically sound decisions which have resulted in many governments struggling to develop integrated and sustainable water policies. As a result, water resources experience inefficient distribution. Even in nations that have the most sophisticated water legislation, the management of the water industry does not yet meet the standards befitting one of our most precious natural resources.
According to McKinsey, the US water system requires investment at a magnitude that has never been seen before. In the United States, leaks result in the loss of 14% to 18% of treated potable water every day. The water and sanitation infrastructure of the country was largely constructed in the late 90s. Ever since, the proportion of infrastructure investment by the central government has decreased, placing an increased burden on state and local governments as they try to balance competing financing objectives. Water-pipe substitution rates are expected to surge in 2035 to 16,000 – 20,000 miles of rebuilt pipes annually, according to the US Environmental Protection Agency (EPA). This is a four-fold increase over the present replacement rate of 4,000 to 5,000 miles yearly.
With the governments across the world acknowledging the importance of investment in the water sector, the initiatives to develop water and wastewater technologies are progressing. The 2021 Drinking Water and Wastewater Infrastructure Act allocated $55 billion to the upkeep and development of the United States water and wastewater facilities. The detection, repair, and inspection of lead service lines to ensure the supply of clean potable water are also among the government’s top priorities. An estimated $15 billion has been allocated to achieve this target, with $4 billion set up solely to address PFAS in drinkable water. The demand for traditional and tech-enabled water and wastewater services is rising among investors and the private sector. In contrast to the water industry’s total M&A transaction growth of 2% yearly between 2012 and 2017, it has now ramped up to 16% annually as of 2021. Furthermore, investment driven by venture capital and infrastructure funds has expanded more quickly, with a compound annual growth rate of 26% within the same time period. Notable companies like American Water Works Company, Inc. (NYSE:AWK), Ecolab Inc. (NYSE:ECL), and Danaher Corporation (NYSE:DHR) stand to benefit from the increase in investment in the water sector.
Photo by Silvan Schuppisser on Unsplash
Our Methodology
Let’s begin our list of the 10 best water stocks to buy now. We have selected companies from the consumer staples, industrials, or utility sectors that are in the business of sourcing, purification, and distribution of water. We have analyzed these companies’ fundamentals and looked into their growth catalysts. In addition, the hedge fund sentiment and analyst ratings have also been discussed. The stocks have been ranked in terms of the number of hedge funds having a stake in them as of Q2 2022.
Best Water Stocks to Buy Now
10. Global Water Resources, Inc. (NASDAQ:GWRS)
Number of Hedge Fund Holders: 5
Global Water Resources, Inc. (NASDAQ:GWRS) is a Phoenix, Arizona-based water utility company.
Global Water Resources, Inc. (NASDAQ:GWRS) reported better-than-expected quarterly results for Q2 2022 on August 10. Revenue increased by 7.3% YoY to $11.7 million and outperformed the consensus estimate of $11.6 million. Meanwhile, adjusted EPS was reported at nine cents, surpassing the analysts’ forecast of five cents. Global Water Resources, Inc. (NASDAQ:GWRS) offers an annual forward dividend yield of 2.13% as of August 24, translating into an annual dividend of $0.29 per share.
Global Water Resources, Inc. (NASDAQ:GWRS) stock is a bet on the water utility segment of Arizona. The southwestern US state is the 14th biggest state in terms of population and is expected to see its population increase by 26.1% or 1.9 million from 2020 to 2040, mainly due to net migration from other states. The population growth is the eighth-fastest among the 50 states. The state is also rising as a hub for the production of semiconductors and electric vehicles (EVs). In September 2021, Intel laid the foundation of two semiconductor manufacturing facilities in the state. Analysts expect all these factors to play in favor of Global Water Resources, Inc. (NASDAQ:GWRS) and increase the demand for its services.
Overall, 5 hedge funds held a stake in Global Water Resources, Inc. (NASDAQ:GWRS) as of Q2 2022.
9. American States Water Company (NYSE:AWR)
Number of Hedge Fund Holders: 13
American States Water Company (NYSE:AWR) is a San Dimas, California-based water and electric utility company. The company has 263,000 customer accounts for the provision of water services across California as of July 2022.
Due to the high cost of entry in the sector, American States Water Company (NYSE:AWR) benefits from a lack of competition which allows the company to enjoy sustainable growth. American States Water Company (NYSE:AWR) stock offers a forward annual dividend yield of 1.87% as of August 24. This translates into an annual dividend of $1.59 per share.
Following the Q2 2022 results, Jonathan Reeder at Wells Fargo increased the price target on American States Water Company (NYSE:AWR) from $75 to $90 and kept an Equal Weight rating on the stock on August 3. The analyst updated his model and incorporated higher peer group multiples to get to the new target price. In the last six months, the stock of American States Water Company (NYSE:AWR) has observed an increase of 4.1% as opposed to the S&P 500 Index remaining flat during the same period.
Holocene Advisors increased its holding in American States Water Company (NYSE:AWR) by over 100% during Q2 2022.
8. Badger Meter, Inc. (NYSE:BMI)
Number of Hedge Fund Holders: 18
Badger Meter, Inc. (NYSE:BMI) is a Milwaukee, Wisconsin-based provider of water flow measurement and water quality monitoring solutions. In the water flow measurement segment, the company provides flow metering and analytics services, while the water quality monitoring segment of the business brings into use optical and electrochemical sensors.
Badger Meter, Inc. (NYSE:BMI) reported better-than-expected Q2 2022 results on July 20. Revenue increased by 12.2% YoY to a record level of $137.83 million and outperformed the analysts’ forecast of $132.04 million. Meanwhile, the adjusted EPS of 57 cents surpassed analysts’ expectations of 52 cents. Badger Meter, Inc.’s (NYSE:BMI) annual forward dividend yield stands at 0.91% as of August 24.
Given the likelihood of a recession next year, experts consider Badger Meter, Inc. (NYSE:BMI) among the top water stocks to buy now. The water utility sector is considered recession-proof due to its critical and regulated nature. Furthermore, the higher probability of droughts and the aging water infrastructure in the US are expected to cause people to monitor the use of water more closely and increase the demand for Badger Meter, Inc.’s (NYSE:BMI) product.
Renaissance Technologies raised its stake in Badger Meter, Inc. (NYSE:BMI) by 199% during the second quarter of the year.
7. Essential Utilities, Inc. (NYSE:WTRG)
Number of Hedge Fund Holders: 22
Essential Utilities, Inc. (NYSE:WTRG) is a Bryn Mawr, Pennsylvania-based water utility company that provides drinking water and wastewater treatment infrastructure and services across Illinois, Indiana, New Jersey, Ohio, Pennsylvania, and Virginia.
In a note issued to investors on August 5, Ben Kallo at Baird increased the price target on Essential Utilities, Inc. (NYSE:WTRG) from $50 to $54 and maintained an Outperform rating on the stock. The analyst highlighted that the company has a strong pipeline given the pending rate cases in a few states. Furthermore, he appreciated the scale of the company and its initiative of spurring growth through takeovers.
During Q2 2022, Essential Utilities, Inc. (NYSE:WTRG) observed its revenue increase by 13% YoY to $448.8 million, surpassing the consensus forecast of $415.97 million. Meanwhile, the adjusted EPS of 31 cents was in line with the analysts’ forecast. The company revealed that it anticipates EPS growth to compound annually by 5% – 7% for the period between 2021 to 2024. Essential Utilities, Inc. (NYSE:WTRG) sees 2022 EPS to be in the range of $1.75 to $1.80 compared to analysts’ forecast of $1.78. Essential Utilities, Inc. (NYSE:WTRG) has an annual forward dividend yield of 2.25% as of August 24.
Of the 912 hedge funds in Insider Monkey’s database, Essential Utilities, Inc. (NYSE:WTRG) was held by 22 hedge funds as of Q2 2022.
6. Primo Water Corporation (NYSE:PRMW)
Number of Hedge Fund Holders: 24
Primo Water Corporation (NYSE:PRMW) is an Atlanta, Georgia-based manufacturer of water dispensers that are sold through retail stores and online channels of notable brands. The company generates recurring revenue by offering water gallons at more than 13,000 locations and self-service water refill drinking units at nearly 22,000 locations.
On August 10, Primo Water Corporation (NYSE:PRMW) announced a share repurchase program of $100 million. The company also declared a quarterly dividend of $0.07 per share, translating into an annual forward dividend yield of 1.98% as of August 24. Primo Water Corporation’s (NYSE:PRMW) management shared that the company’s balance sheet is strong enough to support growth ventures while returning value to the shareholders simultaneously.
During Q2 2022 results posted on August 11, Primo Water Corporation (NYSE:PRMW) saw its revenue increase by 8.6% YoY to $571.4 million, surpassing the consensus estimate of $549.15 million. Furthermore, the adjusted EPS of 21 cents was four cents higher than the analysts’ forecast. Primo Water Corporation (NYSE:PRMW) guided that it predicts Q3 2022 revenue to be in the range of $570 million to $590 million. The midpoint of $580 million is 3.5% higher than the consensus forecast of $560 million. Primo Water Corporation (NYSE:PRMW) also raised its full-year 2022 revenue growth guidance to a range of 12% – 14% as opposed to prior guidance of 9% – 10%.
In addition to Primo Water Corporation (NYSE:PRMW), stocks such as American Water Works Company, Inc. (NYSE:AWK), Ecolab Inc. (NYSE:ECL), and Danaher Corporation (NYSE:DHR) are also among our list of the ten best water stocks to buy now.
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Disclose. None. 10 Best Water Stocks to Buy Now is originally published on Insider Monkey.
